Our comprehensive assessment of Venezuela's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Venezuela, as well as the latest industry developments that could impact Venezuela's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Venezuela before your competitors.

Country Risk

Venezuela Country Risk

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Core Views

  • We expect economic growth to remain sluggish, characterised by a slowdown in private consumption, net exports, and investment. The negative outlook has deteriorated further amid falling oil prices.

  • President Nicolás Maduro has consolidated his position at the helm of the PSUV, but his popularity has waned amid economic difficulties affecting all segments of society. He will continue his predecessor's policies of elevated social spending, resulting in sizeable fiscal deficits.  

  • Inflation will remain elevated, at the highest level in Latin America, and the operating environment will remain very precarious for foreign multinationals in the country.

Major Forecast Changes

  • We have downgraded our GDP forecast for the next several years,...

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Venezuela Operational Risk Coverage (9)

Venezuela Operational Risk

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BMI View:   Although the terror threat in Venezuela is low, high rates of violent crime and the implications of anti-American foreign policy pose substantia l operational risk to investors. In particular, foreign workers are exposed to kidnapping risks and inadequate protection from the country's police force , which often necessitates hiring private security . Venezuela performs poorly in BMI 's overall Crime and Security Index, scoring 24. 4 out of 100. The country ranks 151st   out of 170 countries globally and 27 th out of...

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Venezuela Crime & Security

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BMI View:   Although the terror threat in Venezuela is low, high rates of violent crime and the implications of anti-American foreign policy pose substantial operational risk to investors, undermining its Crime and Security performance. In particular, foreign workers are exposed to kidnapping risks and inadequate protection from the country's police force which often necessitates hiring private protection. Venezuela performs poorly in BMI's overall Crime and Security Index, scoring 24.2 out of 100. The country ranks 154th out of 170 countries globally, and 27 thout of 28 countries in Latin America, marginally ahead of its regional ally, Ecuador.

Crime is endemic in Venezuela and poses a critical threat to foreign operators. The capital Caracas is the third-most dangerous city in the world with an estimated 10 homicides per day. Foreign...

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Venezuela Labour Market

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Venezuela has consistently delivered strong social welfare programmes which have improved public services and the availability of labour. However, the country performs very poorly with regards to labour costs, which significantly increase operational risk to private companies and are a serious concern for investors. These strengths and weaknesses are factored in the BMI Labour Market Risk Index, in which Venezuela scores an overall 52.9 out of 100, ranking it 11th out of 28 countries in Latin America, in between Ecuador and Panama. Meanwhile Chile, which has very liberal labour laws, is a regional outperformer with a score of 64.6.

Labour Availability in Venezuela is good, due to high rates of urbanisation, and strong public spending in health and primary education. As a result, the workforce is located in close proximity to commercial areas, transport hubs, and effective public services. This is good for business...

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Venezuela Logistics

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BMI View:   Venezuela's transport infrastructure is in poor condition, utilities supply is struggling under growing demand and trade bureaucracy creates major bottlenecks in international trade. The country does however offer some strong comparative advantages for investors, including the lowest energy costs in the world, but these fail to significantly mitigate logistics risk. Overall, Venezuela has a weak supply chain which carries inherent threats to business operations. This contributes to the BMI Logistics Risk Index, which places Venezuela 25th  out of 28 countries in Latin America , with a score of 38.6 out of 100 .

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Venezuela Trade & Investment

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Poor economic openness, severe government intervention, and weak rule of law present high risks to investors in Venezuela. Overall trade is restricted, while markets are tightly controlled and government owned to a large extent, which distorts the competitive landscape. Furthermore, successful private businesses have been nationalised and compensation is often insufficient or delayed. Given that the legal system is subject to government influence, investors are forced to seek compensation through international organisations which are unable to influence the Venezuelan government. Therefore, the fundamental risks far outweigh the few consolatory advantages available to investors.

As a result, Venezuela scores 26.9 out of 100 for Trade and Investment Risks in our Operational Risk Index. This puts it in 27th place out of 28 countries in Latin America, ahead of last placed Haiti (19.0), while Panama is the regional outperformer scoring 61.4. This...

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Venezuela Industry Coverage (20)

Agribusiness

Venezuela Agribusiness

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BMI View: Venezuela is on track to record another lacklustre year for agricultural production in 2014, as output price restrictions and soaring input prices are keeping a lid on investment in crops and machinery. Nicolás Maduro and ruling Partido Socialista Unido de Venezuela made the choice of continuity in terms of interventionist policies, which will maintain a challenging environment for agricultural and food production. Price fixing in particular continues to be a source of woe for producers unable to meet input costs which are soaring in line with some of the highest rates of inflation in the world. Meanwhile, consumption remains relatively robust causing shortages of some imported goods.

Agribusiness Market Value
BMI Market Value By Commodity (% of Total) (2010-2018)
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Autos

Venezuela Autos

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Vehicle sales in Venezuela declined 85.6% y-o-y, to 8,236 units, in the first six months of 2014 as the increasingly poor economic outlook impacts the sector. BMI is increasingly bearish on Venezuela's private consumption outlook, and we expect this to lead to a 95% drop in autos sales over the full year.

Vehicle production in Argentina declined 83.3% y-o-y in the first six months of 2014, to 6,161 units, as the domestic market contracts and the country's business environment deteriorates. BMI forecasts a 75% decline in output over the full year as these dynamics continue to hamper the sector.

BMI has long maintained a bearish outlook on vehicle production in Venezuela, as the government continues to intervene in the economy, further restricting access to foreign currency and implementing import restrictions on auto components. The ongoing weakness...

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Commercial Banking

Venezuela Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Venezuela Consumer Electronics

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BMI View: The prospect of currency unification in 2015, which is our in-house Country Risk team's core scenario, is expected to add to the negative trends already impacting consumer electronics spending in Venezuela and result in a sharp contraction in US dollar spending. Meanwhile, t he push by the government to implement the 'fair price' law in H114, which restrict ed vendor margins to 30%, means vendors face continued political as well as economic risk factors. The law adds to a hostile business environment and exacerbates existing challenges for vendors including currency weakness, and economic, political and security risks that are weighing on purchasing power and consumer confidence. As the economy is stabilised in the latter years of our forecast period we believe there is...

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Defence & Security

Venezuela Defence & Security

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Historically speaking, Venezuela is an insignificant player in the world arms market. It imports nearly all its weapons, and in fact has almost no indigenous defence production capability. Venezuela's marked dependence on weapons imports has traditionally been somewhat offset by the diverse suppliers from which the country purchases its arms. The country still suffers from a US embargo of arms deals from 2006. As an important oil-exporting economy Venezuela retains substantial resilience despite recent economic mismanagement and heightened political risk. BMI's view is therefore that the economy will continue to see positive but disappointingly low GDP numbers. On the political front President Nicolás Maduro, elected in early 2013, will continue to follow the left-wing and nationalist policies of his predecessor the late Hugo Chávez. However, Maduro lacks Chávez' leadership skills and political instincts, and...

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Food & Drink

Venezuela Food & Drink

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BMI believes that, given the substantial headwinds facing the Venezuelan economy, the country's real GDP will expand slowly over the coming years, at 1.3% in 2013 and 0.5% in 2014. Despite enormous natural resource wealth, the economy's outlook will be dimmed by poor macroeconomic governance, high inflation and significant political uncertainty. Furthermore, we expect household consumption to continue to be constrained by high inflation, which has substantially eroded purchasing power.

Headline Industry Data (USD)

  • Per capita food consumption forecast 2014 to 2018 = -0.9%.

  • Alcoholic drink sales forecast 2014 to 2018 = +73.6%.

  • Soft drink sales forecast 2014 to 2018 = +72.1%.

  • Mass grocery retail sales forecast 2014 to 2018 = +78.9%.

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Freight Transport

Venezuela Freight Transport

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Low Cargo Growth Expected in 2015

BMI envisages very low cargo volume growth in 2015, due to a standstill economy and a number of industry-specific problems. The freight transport sector faces ongoing concerns about the lack of sustainable import demand and slowing oil exports. Chronic mismanagement of the country's port facilities since they were nationalised in 2009 has damaged their international reputation and their profit-making capabilities. We do not expect any significant recouping of lost throughput levels over the medium term. Over a longer period, investments from China could see the facilities begin to regain some lost ground. Regarding other transport modes, airfreight sector remains restricted by currency controls. Venezuela lacks reliable data on its small rail freight and large road haulage volumes, but cargo growth on both will be kept to low single percentage digits.

BMI...

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Information Technology

Venezuela Information Technology

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BMI View: W e expect the Venezuelan IT market to   be a regional underperformer in 2015, with unification of exchange rates for the bolivar expected to be a major disruptive factor under our core scenario . Additional economic challenges in 2015 inclu de inflation forecast at   more than 50% and real terms economic growth forecast at just 0.8% . These add to the existing challenges posed by the policy environment in areas such as ...

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Infrastructure

Venezuela Infrastructure

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BMI View: We have revised down our forecasts to reflect a more aggressively deteriorating environment in Venezuela's construction sector. Although we anticipated a substantial decline in industry growth in 2013, we are now estimating a recession for the year, which we believe will persist until 2015. High input costs, a weakening government fiscal position and an unattractive environment for private investors mean there will be few sources of growth for the industry until fundamental economic and political changes take place.

As anticipated, 2013 has been the start of a steep deceleration in growth in Venezuela's construction industry. We are now estimating a contraction of 3.9% for the year, and we believe negative growth will persist through to 2015 (-2.1% in 2014, and -0.6% in 2015). A slimming project pipeline in the infrastructure sector, partly due to growing fiscal pressure on the...

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Insurance

Venezuela Insurance

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BMI View :  This is BMI's first review of the insurance sector of Venezuela. Due to demand for health insurance, Venezuela ' s insurance sector is, by many metrics, surprisingly large and well developed given the unusual and difficult economic and financial conditions. We think that those conditions will improve during the forecast period, with the result that there is strong grown in the non-life segment: however, this is unlikely to happen in the next year or so. Depending on how Venezuela returns to economic and financial normalcy, the growth opportunity in the insurance sector could be surprisingly large.

In terms of its economic and financial situation, Venezuela is not a normal country. The VEF is a weak currency and lax fiscal and monetary policies have long produced a...

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Medical Devices

Venezuela Medical Devices

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Espicom Industry View:   The Venezuel an medical device market   is hyper-inflated, ranking six th in the Americas region . It is projected to register a negative 2013-2018   CAGR due to maxi-devaluations of the bolívar, which should bring down p er capita consumption. The market is reliant on tightly controlled imports, w hich have performed negatively since 2011, affecting the public and private sectors . In spite of the development of Barrio Adentro, the public...

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Mining

Venezuela Mining

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BMI View: We expect uneven mining sector growth through 2018 across various countries within Ce ntral America and the Caribbean. The region has significant untapped mineral potential, though variations among countries' business environments and operational challenges will mean varied performance . Overall, we expect Colombia and Panama to see the strongest mining sector growth, while Guatemala, and to a lesser extent Honduras, underperform.

We expect Colombia and Panama to lead the region in terms of mining sector development, with the Dominican Republic not far behind. The former two lead in their overall business environments and mining sector regulatory framework, which should enable consistent investment and sector development...

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Oil & Gas

Venezuela Oil & Gas

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BMI View:   W e maintain   a cautious outlook for Venezuela's oil and gas sector d espite vast upstream potential and ambitious plans by PdVSA .   We expect Venezuela to continue to   underperform given the large scope   of operational challenges, such as political interference, chronic underinvestment, unattractive operating environment and a precarious financial situation facing the...

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Petrochemicals

Venezuela Petrochemicals

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Progress on expansion of the Venezuelan petrochemicals industry has been slow and undermined by the government's policy in upstream sectors that provide feedstock and its general indifference to improving the investment climate, according to BMI's latest Venezuela Petrochemicals Report.

In recent years, polymer shortages have had a deleterious impact on the Venezuelan market. Beset with operational problems and lacking capacity to satisfy local demand, Pequiven has increasingly had to rely on imports to fill the gap, causing more exposure to international price shifts. Reliance on imports has also raised the price of resin supplies for transformers, undercutting their margins and therefore their competitiveness, with Venezuelan plastics transformers paying the highest PE prices in the region. In some circumstances, this has prompted a switch from LDPE to LLDPE. In 2013, the main story was the...

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Pharmaceuticals & Healthcare

Venezuela Pharmaceuticals & Healthcare

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BMI View: Venezuela's improving foreign currency supply, increasing pharmaceutical imports from political allies and the potential expansion of free medicine coverage in the public sector will ease the shortage of local medicine s in the near   term. However, fundamental issues - such as price controls, high inflation, currency devaluation, import and foreign currency controls and the government's attitude towards normal business practices - have not changed. We therefore maintain the bearish view towards Venezuela's long-te rm   pharmaceutical market growth .

Headline Expenditure Projections...

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Power

Venezuela Power

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BMI View:   This quarter we   maintain our negative outlook of th e Venezuelan electricity market.   Although the country had made some progress with regard to improving existing capacity and bringing new projects online over the past year, the country continues to suffer from blackouts, stemming from inadequate hydropower output (primarily as a result of low rainfall levels ) and   inefficiencies in the transmission and distribution segment . As such the country is...

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Real Estate

Venezuela Real Estate

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BMI View:     Uncertainty has become an ongoing theme within the Venezuelan real estate sector. Unfavourable government policies, stubbornly high levels of inflation and exchange rate issues have deterred much needed investment in the sector. The country's economy, however, possesses great potential, which we believe will create attractive opportunities for real estate in the long run.

Venezuela's limited construction pipeline has created a market that is extremely low in supply. This in effect has offset the growing caution amongst potential tenants so that demand remains high for what space that is still available. The government's populist policies continue to create a business environment that is inherently anti-private business and this has encouraged domestic and overseas investors to look elsewhere.

Meanwhile,...

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Retail

Venezuela Retail

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BMI View:   Rising incomes and an increasing number of middle class households make Venezuela's retail market attractive. However, these plus points are overshadowed by the uncertain business environment and economic instability.

The new Venezuelan Retail Report provides an extensive and comprehensive forecast of various retail indicators including household spending, and headline total spending across each retail sub-sector, household income and employment forecasts, demographic forecasts, and a detailed breakdown of household and per capita spending across a large number of retail areas.

We are forecasting real GDP growth of just 0.5% in 2014, in the face of high inflation and the challenges posed to the business environment by the government, such as the ongoing market distortions associated with price controls the country's complex system of...

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Shipping

Venezuela Shipping

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Venezuela's fiscal deficit will narrow significantly in 2014 thanks to the government's greater purchasing power afforded by the ongoing devaluation of the currency. However, we have downgraded our budget forecasts following a deterioration in the outlook for the country's oil and gas production. We are forecasting a budget deficit of 6.7% of GDP in 2014, and 6.5% in 2015, compared to 9.8% in 2013.

We expect that the fiscal deficit, while still wide, will contract significantly in 2014 thanks to reforms to the country's exchange rate system which effectively amounts to a major devaluation of the currency. Given that a large share of public receipts are denominated in dollars, through revenues in the oil and gas sector, this will strengthen the government's position by allowing it to purchase far more bolivars in order to fund its expenditures. We forecast that the fiscal deficit will come in at 6.7% of GDP in 2014, and 6.5% in 2015, compared...

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Telecommunications

Venezuela Telecommunications

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Industry Forecast Scenario

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Autos Total Market - Historical Data And Forecasts (Gabon 2012-2018)
  2012 2013 2014f 2015f 2016f 2017f 2018f

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